Swedenâs four pension buffer funds, with Skr895.8bn (â¬95.4bn) of assets under management used to accumulate savings for the national pension system, have generated an average return of 6.58% in the first half of the year.

The funds, called AP1 to AP4, had relatively similar returns ranging from 6.2% to 7% for the period.
However, the similarity in their returns has reignited concern the funds’ portfolios are too similar, despite being established as competing vehicles.

Harry Flam, who was a director of the public pension scheme for five years until last year and is professor of international economics at Stockholm University, said the four funds had similar results because they used the same processes.

“All the funds use the same portfolio theory and consultants when creating their portfolios. They all have 55% to 58% in equities, largely similar amounts in bonds and a few per cent in alternatives,” he said.

In 2000, the system was established to create four funds with separate and competing investment strategies. The aim is to obtain more efficient asset management, leading to higher returns and a more stable pension system. The buffer funds are reserves intended to shore up the state pension system if it is unable to meet its liabilities.

The six-month results give Flam further ammunition for his proposals published in a paper in May, which called for the four buffer funds to be merged to save on administrative costs and to adopt a 100% passive strategy.

But Mercer Investment Consulting’s Stockholm-based consultant Niclas Sundberg said that there were substantial differences between portfolios within the allocations to each asset class, and a high weighting in equities was common among Swedish pension funds.

“All the clients we have been working with have weighting of about 50% to 60% in equities with a lot in Swedish equities.

“Of the buffer funds, there are similarities but, looking closer at the asset allocation, you can find differences. For example, some have more in real estate, while the others focus on hedge funds or other alternatives,” he said.